Dark Energy's new game, Hydrophobia, has evolved from tech demo to flagship title of Microsoft's fall push of Xbox Live Arcade games. It's not just because of the water. It's because of what you can do with it.

Rob Hewson, creative director at Dark Energy, cancelled out of the Hydrophobia demo running on the show floor at Penny Arcade Expo on Sunday in order to show Kotaku something he'd shown, he said, only four other people at the show: the game's advanced underwater combat.

The video I shot of Rob playing shows the good stuff. It demonstrates the advanced water physics in Dark Energy's game and provides a believable sense that combat can vary greatly depending on the water's flow. The player has the ability to knock things upstream, to set fires on floating slicks, to blast open windows and walls in order to flood a room and to dive below for submerged gunfights.

The game is set on a massive cruise liner that has been taken over by terrorists. The player controls Kate, a woman who is going to take those terrorists down. The gameplay mixes climbing and gunplay which will probably attract comparisons to Tomb Raider, and the aesthetic of this seaborne metal base reminded me of Metal Gear Solid 2. But those comparisons become irrelevant once the water starts flowing.

Hydrophobia is very far along. It will launch on the Xbox 360 as a downloadable game on September 29. PC and PlayStation 3 downloadable versions had also been in the works, but release dates for those have not been given.